In this paper, we construct alternative theoretical models for exchange rates by introducing additional risk factors, based on the volatility of macroeconomic fundamentals. The modified flexible-price monetary model is used to characterize the long-run equilibrium of exchange rates, while the...

This paper argues that Blomberg and Hess's (Journal of International Economics 1997) finding that political variables can be used to predict exchange rate movements better than the random walk model must be seen in the context of the decade and half of previous research which failed to beat this...

Since the Fall of 2008, out-of-the money puts on high interest rate currencies have become significantly more expensive than out-of-the-money calls, suggesting a large crash risk of those currencies. To evaluate crash risk precisely, we propose a parsimonious structural model that includes both...

Colacito and Croce (2006) study the dynamics of the growth rate of the real exchange rate, when the preferences of the representative consumers in the two countries are defined only over the domestic good and characterized by non-time separability a la Epstein and Zin (1989). This paper shows...

Market segmentation and exchange risk are two main factors that distinguish international financing and investment decisions from domestic ones. Existing studies of market segmentation have been conducted within a framework in which exchange risk is not explicitly recognized. This paper performs...

In this paper we show how trading rules can generate excess volatility in the exchange rate through repeated entry and exit of currency bears and bulls. This is something of a caricature: but it allows us to show that offcial action can have self-fulfilling effects as market composition shifts...